OIDMTC Dilemma

Over the past few months I have been hearing an increase of complaints about the Ontario Interactive Digital Media Tax Credit (OIDMTC), particularly about how the OIDMTC is actually inhibiting economic growth by SMEs (small and medium enterprises).

Before I go any further into this topic, I want to clarify that any assumptions within this article based on my own interpretation of the intent of the OIDMTC.

My understanding of the OIDMTC is that they were created to support the growth of Ontario’s Interactive Digital Media (IDM) industry by providing a tax credit to Ontario-based incorporations that employ residents of Ontario.

The OIDMTC, while reported on a project basis, is filed by the company by taxation year.  So as a company, you submit one kit of documents for each project completed that fiscal year, which is similar to the arrangements of other tax credits administered by the Ontario Media Development Corporation (OMDC): the Ontario Sound Recording Tax Credit and the Ontario Computer Animation and Special Effects Tax Credit.

When a company sets up its own full-service IDM shop, it is pretty straight-forward to work with the regulations of the OIDMTC as they are.  The problems I hear are coming up mostly with companies working in the ‘Convergent’ production space – making IDM content for television productions.  Many of these productions are led by TV production companies, or small interactive creative shops – both with limited in-house design and programming personnel, often outsourcing actual development (or ‘production’ if you are reading this article with a TV mind) to a 3rd party IDM studio instead of ‘staffing up’ for the production.

In television production, it is common practice to use tax credits to close the funding gap on a per project basis.  This practice does not necessarily translate as well in the IDM space due to the regulations of the OIDMTC.

Because the OIDMTC was set up to support the growth of interactive studios – to help them hire Ontario residents to the projects, being a TV production company or creative shop and hiring out all of the production of the interactive content to 3rd party studios is outside of the spirit of the Fund.  Now, the studios hired may be eligible for a reduced OIDMTC, but that funding is intended to help them grow their studios, not to invest into projects not owned by the studio.

Does this make the OIDMTC useless? No. It means we need to, as an industry, find ways to work within the spirit of the tax credit, which is to sustain an industry.  The difficulty for the OIDMTC is the growing volume of what “interactive digital media” means.  The needs and uses for the OIDMTC contribution within ‘convergent’ studios is different than that of formal ‘game’ studios, different from ‘webisode’ producers, etc.  We need to decide if we need the OIDMTC to continue to support studios and the industry as a whole, or if we need them to focus on helping close funding games for IDM projects.

I don’t feel as though I can propose a solution that will satisfy all types of producers.

I will recommend that we need to find ways to encourage collaboration.  We are an industry of SMEs – everyone has their strengths and their weaknesses.  Inter-company co-productions are going to become more common.  The OIDMTC will need to find ways to help support this business model.

What I will caution against is transitioning the OIDMTC from a corporate-based tax credit into a project-based tax credit like the Ontario Film and Television Tax Credit (OFTTC).  Unlike film and television productions where 90% of the workforce is hired on as contractors, interactive studios have staff.  To shift the OIDMTC from supporting companies to supporting specific projects will only shift the problems for SMEs from chasing money to make a project to chasing personnel to hire on very short contracts.  We need to encourage sustained growth of studios, and through that, encourage stability of jobs in the Ontario interactive digital media industry.

One comment:

  1. There’s a good deal of nonsense going on with this tax credit. When a company hires an interactive vendor to produce the interactive content, keeping with the “spirit of the fund” as you put it, the money should go to the vendor. A requirement of the credit is that the money gets paid out to the company that completes 90% of the work.

    There is an obvious loophole here that i’ve been burned by twice already. Since it’s up to the originating company to define the scope of work, it’s very easy for that company to scope themselves into a tax creditable position. For example, if my company completes a game and the originating company provides oversight, we’ve taken care of 90% of the work. But the originating company declares that the game is just one title in a SUITE of games. Since i didn’t do 90% of the work on the SUITE, i’m not entitled to the tax credit.

    You can see how this falls down from the perspective of an interactive vendor. A company approaches me to build a game. That’s the scope. i complete 100% of the work (let’s chip off 3% for oversight, maybe). i should be entitled to the tax credit for that project as presented to me. But i’m not.

    In another, even dodgier circumstance, a broadcaster hired me to complete a game. Once again, we completed 100% of the work. But the broadcaster defined a spuriously large scope for the entire project – they planned to have a bunch of games built (again, a “suite”) and to release a new game on the site every Wednesday. Since my company did not complete over 90% of ALL the games the originating company commissioned, we are once again cut out of the tax credit.

    i probably need not mention that as the interactive vendor, i’m the small, struggling fish in this scenario, and am much more in need of these funds to survive. But as long as the OMDC allows larger companies to take advantage of this scope loophole, i don’t see myself filing a claim for a very long time.

    – Ryan

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